U.S. Dollar Bulls Aren’t Giving Up
The U.S. Dollar’s climb continued today as prices climbed to 78.43 and while this did not break through the October highs between 78.51 and 78.61 it did show that the bulls are trying to test the upper ranges of what is slowly shaping up to be a distribution range.
I am keeping an especially close on this action in the dollar since this would be that I would have a valid reason to “shift gears” from my strategy, which has been centered around capitalizing on the dollar weakness since early Summer. In my opinion, the current congestion has already transitioned the USD/JPY and the USD/CHF out of their downtrends and put each of them into distribution –which is characterized by a wide, volatile, sideways range.
I believe the chances that the U.S. Dollar is attempting to make this same transition is high and one that I have been watching since early October. The “flash crash” on October 22 to 75.85 did put that transition off for a couple weeks since the lower low empowered the bears and the dollar sank further later that month.
In my opinion, the current rally has finally gotten in sync with the bullish fundamentals in the dollar and the bearish fundamentals coming out of Europe. These fundamentals are not necessarily new, but apparently the talk coming out of Washington, D.C. has finally begun to take hold and coupled with the bounce has given dollar-bulls hope that there is a bottom in place.
I would be cautious however to assume that a broken downtrend is automatically a reason to be bullish. Distribution could mean that prices are likely to exhaust at 78.61 to 79.00 while a ceiling and range are put in place. Consider that with 2010 winding down and the holidays approaching, the last eight weeks of the year would present a perfect time to congest the dollar but not necessarily push it into an uptrend.
For this reason, I am looking to intraday time frames for trading set ups since they would require less follow-through in terms of pips and organized momentum. My focus has been on five and 15-minute charts with the exception of the 240-minute EUR/USD, which is in a confirmed and clear mark down phase.
The reason for my emphasis on the U.S. Dollar this week is because with clarity from this currency – its relationship back to (specifically) the EUR/USD, USD/CHF, USD/JPY, and AUD/USD will be difficult to ascertain. Consider that the USD/JPY could begin to rally or sell-off with the Dow Jones (and equities in general) so be aware of that relationship and the AUD/USD could continue its ascent on the daily since a stronger equities market would be excellent support for the uptrend in commodities and help the Australian Dollar to further strengthen.
For this reason – commodities strength – I am comfortable to continue to enter swing buys on the daily Aussie but with lowered upside follow-through expectations.
Another consideration would be that if the Dow Jones Industrial Average can find support at the 50 period simple moving average at 11203 (just three points from the major psychological level), the rally could resume and this would put pressure on the U.S. Dollar which has benefitted from the risk aversion seen on the Dow’s weakness for the past five sessions.
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Similar Posts:
- Expectations for Support at the Current Levels in the U.S. Dollar
- Identifying the Range on the Daily USD/CHF
- The U.S. Dollar’s 77.00 Breakdown Impact
- Bullish Dollar Sentiment Still Rules
- Daily Chart Art – October 28, 2011
